What Happens if Someone Dies Owing Money to the IRS?

What Happens if Someone Dies Owing Money to the IRS?

It's not unusual for someone to die while owing taxes to the Internal Revenue Service. Money owed may fall into one or more categories:

Tax debt owed to the IRS from prior years

Unfiled taxes for the current tax year (if the individual had income in the current tax year)

Unfiled taxes for the prior tax year (if the individual had income and died before filing his or her prior year's tax return)

Taxes and Death

As the saying goes, "Only two things in life are certain: Taxes and death." And even taxes can survive after death! That's because a deceased person's estate must pay any taxes that are owed before money can legally be distributed to heirs.

Most tax preparers will be familiar with filing income taxes on behalf of a deceased person and with filing an estate tax return.

However, if the deceased person owed back taxes, the estate's executor should hire a tax lawyer who's experienced handling issues related to tax debt and tax collection efforts.

When a person owes back taxes to the Internal Revenue Service, then the IRS will put a tax lien on the person's home, car or other valuable assets. A lien is a type of legal claim to a person's assets, and prevents the assets from being sold or transferred to another person until the debt is paid off.

For example, suppose the IRS has put a tax lien on a person's house. The person passes away and in his last will and testament leaves the home to his son. The executor of the estate must first pay outstanding debts before inheritances can be distributed. If the estate has enough cash, it would pay the tax debt and the IRS would lift the tax lien, allowing ownership of the house to be transferred to the son. But if the estate doesn't have enough cash to pay the IRS, then the IRS can seize the house.

Similarly, suppose the estate has filed a wrongful death lawsuit against the person responsible for the individual's death. If the lawsuit is successful, the money that's won must first be used to satisfy the tax debt. Any money that remains can then be shared by survivors.

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